Sunset Ruling on Indemnity Leads to Dismissal of Client

Gordon & Polscer partner Robert Spajic was able to secure a dismissal of a client on the eve of a construction trial that presented significant exposure.

Our client was a subcontractor on a construction project that involved removal, replacement and a retrofit of the lift span of a heavily traveled bridge. The bridge owner filed suit against the project designer, the materials manufacturer and the project general contractor alleging that the components were improperly designed, fabricated and installed. Damages sought were in excess of $6 million. Our client refused the general contractor’s tender of defense. The general contractor brought third-party claims alleging breach of contract for failure to properly perform the work and for failing to defend the general contractor.

As trial neared, it became clear that our client’s exposure on the failure to defend claim (brought pursuant to the contractual indemnity and hold harmless clause) was significantly greater than it was for the workmanship claim. Trial was scheduled to begin February 2015.

In December 2014, the Oregon Court of Appeals issued its opinion in Sunset Presbyterian Church v. Andersen Construction, et. al., 268 Or. App. 309 (December 31, 2014). The effect of the court’s Sunset ruling is that a subcontractor’s duty to defend and indemnify a general contractor is limited to payment of only those defense and indemnity costs incurred by the general contractor defending against or paying for claims that relate to the subcontractor’s work. The court also made clear that the general contractor bears the burden of proving those costs and segregating them from the defense and indemnity costs incurred by the general contractor defending against claims that implicate the work of other subcontractors.

As trial approached, the parties’ attempt to reach a global settlement fell short. However, in the wake of Sunset, we were able to reach agreement with opposing parties that the absence of significant evidence on the workmanship claims made the failure to defend claim not worth litigating. Less than 3 weeks before trial, Mr. Spajic was able to negotiate a dismissal of our client. The case went to trial in February 2015 and resulted in a verdict of more than $5 million.

This case is one of the first of what we expect will be many cases that will be impacted by the Sunset ruling.